"Buying" house from Birth Mother

Somerset-saver

Hi, this is a lovely situation. I have found my birth mother and she wants to give me a house. Amazing! She is English, has dual nationality but has German Residency. Sadly my father, her husband has recently died and for the inheritance rules it is easier for me to 'buy' the house she wants to give me (I am not their daughter by law of course) It is in UK, has been accurately valued at £100k so that is the figure I will be 'paying'. Are there any rules that the money has to change hands? Not trying to avoid tax, just want to make the exchange legal and above board. Thank you

davidmcn

I don't know what "inheritance rules" you're referring to. Has your mother already had German advice about what you're proposing?

G_M

If you want it to be legal and above board, then don't try to 'fiddle' by calling it a sale but then not paying for it.

I am guessing, but imagine the inheritance rulesyou refer to are the ones that say that where a gift is given, and then the donor dies within 7 years, the value of the gift (subject to some excpetions) is included in the estate for Inheritance Tax purposes.

If your mother's estate is valued at, say, £324,000 excluding the house (325 is the level at which IT starts to be payable), and she gives you the house worth £100K as a gift, and then dies, say 3 years later, then her estate would be valued at £424,000 (324 + 100), and tax would be charged at 40% on £99,000 (424 - 325).

If she sells you the house, and then dies, then her estate should be worth £424,000 (the 324 excluding the house + 100 that you pay her) so tax is the same.

I imagine the intention here is to remove the house value from the estate by 'selling' it as opposed to gifting, but then not increase the value of the estate since you don't actually give her the money.....

This sounds certainly immoral and almost certainly like tax fraud.

If money does not change hands, it is a gift, not a sale, and IH rules applying to gifts would apply.

And before you ask - yes, if she sells it to you and you pay, but at below market value, then that would be part sale and part gift. The sale part would increase her estate by the amount you pay her, and the gift part would be treated as a gift for IT (subject to the 7 year rule).

Somerset-saver

Thanks for the responses...
I do not know the reasons for wanting to 'sell' to me. I presume the tax would be German not UK as she is a German Resident. I think a big problem is the cost of changing my status to daughter in Germany when the adoption was in UK is prohibitively long and expensive.
I have arranged the valuation so that is 100% accurate by surveyor. Is the advice to only accept as a gift?

davidmcn

Somerset-saver wrote: »

Is the advice to only accept as a gift?

I think the advice is that you (and/or your mother) need to ask someone who understands German inheritance tax.

Making some pretence of "paying" a price (and then presumably handing it back under the table?) wouldn't stop it from being a gift in UK tax terms anyway, I can't imagine that the Germans would be any more impressed by it.

Pixie5740

See previous thread: Gift of House, Fab but Legal? Help!

silvercar

She is English, has dual nationality but has German Residency.

She could have an English will leaving her property in England to you. She would need to put something in her German will that her estate in England should be disposed of in accordance with her English will. Then she could name you without having to state that you are her daughter.

She really needs professional advice in Germany. Somehow I get the impression that you "buying" the property is more to do with reducing tax on the total estate rather than inheritancy law as I doubt any modern country would have rules preventing non descendants inheriting. The German inheritancy rules must be very different to England if it is not possible to leave you an inheritance under german law.

Nobbie1967

silvercar wrote: »

She could have an English will leaving her property in England to you. She would need to put something in her German will that her estate in England should be disposed of in accordance with her English will. Then she could name you without having to state that you are her daughter.

She really needs professional advice in Germany. Somehow I get the impression that you "buying" the property is more to do with reducing tax on the total estate rather than inheritancy law as I dioubt any modern country would have rules preventing non descendants inheriting. The German inheritancy rules must be very different to England if it is not possible to leave you an inheritance under german law.

I think you will find that many countries in Europe have rules about who you can leave money to

http://www.cyclingtimetrials.org.uk/event/1087

Looks like the issue may be one on tax being payable on inheritance if you're not a descendent of the deceased. Looks like children get a €400k tax free band, but non children don't. I'm sure they have rules about gifts which seek to avoid this inheritance tax similar to the UK ones. Best to seek German legal advice or you could end up with a big tax bill somewhere down the line.

getmore4less

So this was first highlighted in Dec 2014 and the advice then has not changed,

GET PROPER ADVICE on what the issue is.


edit: apears germany has some far reaching gift taxes that need expert advise.

I very much doubt buying it and then gifting the £100k works.

G_M

Pixie5740 wrote: »

See previous thread: Gift of House, Fab but Legal? Help!

Well spotted/remembered Pixie.

Good grief! And I even responded back then!

As getmore4less says the advice really has not changed. What legal have you obtained since last December and why are you back here with the identical Q....?